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Archive for the ‘Bankruptcy’ Category

Bankruptcy is an effective – yet drastic – way to shield you from your creditors. The proceedings are governed by federal law and are designed to give you a fresh financial start. In October 2005, the U.S. Congress overhauled the U.S. Bankruptcy Code, making it far more difficult to file bankruptcy.

Things You’ll Need:

  • Past due bills, tax returns, paycheck stubs
  • Bank statements
  • Bankruptcy attorney, also known as a debt relief agent
  • Money to pay your lawyer and court costs

Step 1:
Contact a reputable bankruptcy attorney. Suggestions for finding an experienced bankruptcy lawyer include contacting your local or state bar associations for referrals or asking friends or co-workers if they know a trustworthy attorney with bankruptcy experience.

Step 2:
Take all your financial papers including outstanding bills, bank statements,paycheck stubs from the most recent six months, copies of mortgages and car loans and tax returns to your first meeting with your attorney.

Step 3:
Your bankruptcy paperwork, called a petition, must list every debt you owe. If you don’t list any creditors and the Bankruptcy Court finds out, it can dismiss your case and your bankruptcy is over. It is also a federal crime to lie on your bankruptcy paperwork. Debtors found guilty of lying in their petition can be fined or even sent to jail.

Step 4:
Discuss your “secured” and “unsecured” debts with your attorney. Secured debts are those like cars and mortgages where creditors hold a security interest in the property until the debt is paid. If the debtor does not pay the debt, the creditor can reclaim the property. Loans on collateral work the same way. Unsecured debts are debts not secured by property, such as most credit cards or medical bills.

Step 5:
Ask your lawyer if any of your debts will survive your bankruptcy or if they will be discharged, meaning you won’t have to pay them after your bankruptcy is over. Debts that are extremely difficult to get discharged by bankruptcy include delinquent taxes, student loans and child support.

Step 6:
Tell your attorney about all the income you earned the last six months. That includes any bonuses or other one-time payments you generated. If you don’t, and the Bankruptcy Court finds out, your case will be dismissed and you could be charged with perjury. The amount of your income will impact the chapter of bankruptcy you are entitled to file.

Step 7:
Depending on the types and amounts of your debts, determine if you can and should file a Chapter 7 (also known as a Liquidation Bankruptcy) or a Chapter 13 (Adjustment of Debts) petition. You may choose Chapter 13 if you earn a regular income and are behind on your secured debts, like your house mortgage, because a Chapter 13 is designed to help you catch up on those payments.

Step 8:
When your bankruptcy petition is completed and you have reviewed it carefully with your lawyer, you will sign the petition in numerous places, verifying the information is true. After that, your attorney will file your case electronically, meaning online, with the bankruptcy court that oversees your district. If you don’t have an attorney, you will have to file your bankruptcy either in person or via U.S. Mail with the appropriate bankruptcy court.

Step 9:
Your creditors will be notified of your bankruptcy filing since the Bankruptcy Court sends each one a document called a Notice of Commencement.

Step 10:
One of the major benefits of filing any chapter of bankruptcy is the “Automatic Stay” that goes into effect as soon as your petition is filed. An automatic stay means your creditors have to stop all collection efforts after they are notified of the bankruptcy filing. Since it takes some time for the bankruptcy court to send the Notice of Commencement to your creditors, if one of them calls you about your debt with them, after you have filed bankruptcy, simply give them your bankruptcy case number and date of filing. Doing so gives them notice of the filing and notice is what makes the automatic stay effective. However, among the major changes enacted in the bankruptcy code is that if a debtor had a prior bankruptcy filing dismissed within too close of a time to your current filing, you might not get an automatic stay.

Step 11:
When a Chapter 7 bankruptcy is filed, the bankruptcy system assigns someone called a Trustee to your case. This person represents the interests of the U.S. Bankruptcy Court. They have several responsibilties. Among them is to ensure you, as the debtor, were honest in completing your bankruptcy petition and signed it with full understanding of what you were doing. They also collect and sell your assets beyond what the bankruptcy code allows you to keep and then distributes monies raised from those sales to your creditors. However, if the Trustee declares you to have a “no asset” case, it means you can keep all of your assets and won’t have to surrender anything to the Bankruptcy Court.

Step 12:
Ask your attorney which “exemptions” apply to your case. Exemptions are allowances to keep some of your assets so you won’t have to surrender every last item you own just because you filed for bankruptcy. Exemptions differ in every state and some states don’t even have their own exemptions. In those states, the federal exemptions apply.

Step 13:
After your bankruptcy is filed, you (and your lawyer, if you hired one) will have to attend a Meeting of Creditors. Assuming that your court hearing goes smoothly and you comply with additional bankruptcy rules as they arise throughout your case, a Bankruptcy Judge will issue you a discharge.

Tips & Warnings:

Though the U.S. Bankruptcy Code is federal, various aspects of the bankruptcy proceeding vary from state to state.

  • Ask your attorney to re-explain any terms of the Bankruptcy Code that are confusing to you.
  • After your bankruptcy is discharged, you will not be able to receive another discharge for several years. The amount of time you can’t file again depends on the chapter of bankruptcy your discharge stems from. For example, if you earned a discharge to a Chapter Seven filing, you can’t get another Chapter Seven discharge for eight years.
  • Filing for bankruptcy will negatively impact your credit record. However, having a boatload of overdue debts isn’t good for your credit record, either. At least by filing bankruptcy, you are trying to make a positive change in the situation.
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    Just the word bankruptcy can send a shiver down the spine and evoke pictures of paupers being shoved through the doors of a debtors prison. We are fortunate no to live in those times, and fortunate that rebuilding credit after bankruptcy is not as difficult as some people might think it is.

    There is a misconception that because the record of your bankruptcy filing remains on your credit report for seven to ten years that you will not be able to get any type of credit during that whole time.

    However, that is not the case at all. Actually, many lenders will accept a an application for credit from you the very day that your bankruptcy is discharged (the legal term that means it is final and your debts have been cleared). Now, that doesn’t mean you should run out and apply for every loan and credit card you can get your hand on, and it doesn’t guarantee that you will be approved.

    What it does mean is that bankruptcy can become an opportunity for you to start over with a clean slate and to learn from your mistakes. While going through a bankruptcy may seem devastating at the time you are going through it, many people claim that it was the best thing that could have happened because it forced them to reevaluate how they were managing their money, and their lives, and in the end many say they came out in stronger financial positions than where they might have been if they didn’t go through bankruptcy.

    That should not be seen a encouragement to take such a drastic step, only as some bit of assurance that rebuilding credit after bankruptcy is possible to restore your credit, and possibly make it even better, after declaring bankruptcy.

    The next question is, how do you start to rebuild credit after bankruptcy? For people who are able to reaffirm a loan that they had secured against their home or automobile, it starts with being sure that payments are made right on time every month, and making sure that before they try to take on any additional debt that they have those payments firmly under control.

    However, if you have no loan still active after the bankruptcy, you will have to find a lender who is willing to be the first to give you a chance. That means you will probably need to look for a loan that is secured with either property you own or are trying to buy, and it is very likely you will pay higher interest rates for it.

    If that is not possible, then a secured credit card could be a good option. This allows you to make a deposit with a bank and then you are allowed a credit line equal to your deposit, which you cannot withdraw while your card is still secured by it. This arrangement will cost some in fees the that lender imposes, but it will give you a chance to put some new, positive, history into your credit report.

    The most important key to rebuilding credit after bankruptcy is being mindful of the commitments you are making with the companies that are willing to lend you money, to be sure you set a firm budget for yourself, and that you make all your payments on time. If you take such measured steps you will be able to have a good credit score again within two or three years and you will have acquired new financial management skills along the way.

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    Creditworthiness is important is our world today in order to obtain a favorable interest rates on big purchases such as homes, cars and educations, and in order to have easy access to money in case an emergency situation arises. When you are able to increase credit score ratings you have many more options available to you in being able to shop for the best loan rate, the best terms, the lowest fees, and the best perks such as travel rewards or cash-back rewards.

    All credit scores are dynamic numbers that are formulated from what is detailed in a credit report at the time a report is pulled, or requested. Credit reports are constantly changing as creditor data is submitted, so a credit score could vary slightly from day to day, especially if one is working on increasing credit scores quickly. Credit bureaus are finally starting to lessen the secrecy surrounding credit scores and are offering more information about reading credit scores. They seem to have realized that it could be to their advantage as well if consumers could objectively oversee their debt in a similar way that an asset manager manages investment portfolios.

    The most simple and best way to credit score increase results is by first creating a positive payment track record, and then steadily maintaining the payments on a monthly basis and also taking proactive steps to repair any errors or bad ratings on your record. These three simple steps are the foundation the will lead to an increase credit score, but it won’t happen all at once or overnight. Credit scores improving over the course months is normal as you make your monthly payments consistently. Fortunately, credit scores increase after bankruptcy as well when these same steps are followed. Studies have shown that in as little as 18-24 months of making regular payments, most people can qualify to get a loan at the same rate they would have gotten pre-bankruptcy.

    In addition to the basics we just covered, there are some other tips to increase credit scores. Credit card issuers like that you are able to manage more than one debt account at a time so opening an additional account or two can help boost your score. Credit agencies also evaluate at how many of those accounts have balances and what percentage of the available credit is being used as additional credit score factors. It seems that using 25 to 30 percent of your available credit is considered optimal, although lenders credit scores may reflect their own guidelines in that area.

    When you are about to get a new mortgage, the best thing to do is to work on an increased credit score and aim for a 700 or better. One easy trick for a fast credit score increase during a mortgage processing is to stop using your plastic. Starting about 45-60 days before starting your mortgage application process significantly reduce the activity on credit cards and you should see your credit scores increase quickly and just in time for the mortgage credit check. Of course this assumes that your cards are paid down to the range of 25-30% as mentioned above. By increasing credit scores quickly you should get a better rate on your mortgage which should save you thousands and thousands of dollars over the course of your home loan.

    While it does take a some time and effort on your part, the increase credit score ratings you will get by using these easy tips will save you a huge amount of money in interest costs and ultimately will have creditors vying to get your business which means better deals for you.

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    Credit is such an integral part of our society that any people who go through financial turmoil wonder if, and how, they will be able to get credit after bankruptcy and when it is possible to reestablish credit after bankruptcies.

    The answer is that you can and will be able to get credit again, as long as your income can support the payments, and as long as you are willing to pay the higher interest rates that most creditors will be inclined to charge.

    In fact, there are even free seminars that you can attend that offer to help you in applying for credit loans after bankruptcy, and where you can actually sit down with creditors and get approval for a credit card, car loan, and even for a mortgage, soon after the bankruptcy is discharged. However, they are not there to counsel you or help you understand if obtaining debt after bankruptcy is truly in your best interest.

    It’s important to remember that any time someone offers you a loan, especially at this time of financial upheaval when you may feel desperate to get credit after bankruptcy, that they have something to gain from the arrangement, and they don’t necessarily have your best interests in the forefront of their minds. While creditors may act like they are doing people a favor by establishing credit after bankruptcies, the reality is that they can charge more for the loan than they can charge people with better credit.

    People believe that the higher rates are a fair trade off because they think that you are a higher risk now. But, in most cases, after bankruptcy people have considerably lower expenses, because their debts have been cleared or restructured, and the risk is very low because they cannot file bankruptcy again for at least 10 years. The real problem is that many of these new offers for establishing credit loans after bankruptcy are really designed to pull you right back into the deep waters of debt again, and this time without an escape route.

    Examining how to get a loan after bankruptcy and taking on new debt at this stage should be done with the utmost care and discipline. While it is true that bankruptcies can have a long-lasting effect on a person’s credit score and rating, it also is a fresh chance to makeover their financial profile and start anew. Because most people will have a better debt-to-income ratio than before, there is actually an opportunity to improve their credit situation fairly quickly.

    It is realistic to establish credit after bankruptcies, but before leaping back into the world of, look at how too much easy debt might have lead to the bankruptcy in the first place, learn from previous mistakes, and determine to do it better this time around. Make sure that repayment of any and all loans is your highest priority. Avoid overextending yourself and strive to live within your means.

    There are many studies that have shown that in 18-24 months after a bankruptcy is discharge most debtors can qualify for a loan, especially a secured loan, with the same terms they would have gotten if they had not gone into bankruptcy. This should give people high hopes of restoring their creditworthiness and their ability to acquire credit after bankruptcy.
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    If you meet the eligibility requirements for both, then you can choose the type of bankruptcy that makes the most sense for your situation. However, you may not have a choice:

    Under the new bankruptcy law, filers whose incomes are higher than the median income for a family of their size in their state may not be allowed to file for Chapter 7 bankruptcy if their disposable income, after subtracting certain allowed expenses and required debt payments, would allow them to pay back some portion of the unsecured debt over a five-year repayment period. (For more on this and other Chapter 7 eligibility requirements, see Who Can File for Chapter 7 Bankruptcy?)

    Also, if you have secured debts of more than $1,010,650 and unsecured debts of more than $336,900, for example, then you cannot use Chapter 13. (For more on this and other Chapter 13 eligibility requirements, see Are You Eligible for Chapter 13 Bankruptcy?)

    Most people who file for bankruptcy choose to use Chapter 7, if they meet the eligibility requirements; Chapter 7 is a popular choice because, unlike Chapter 13, it doesn’t require filers to pay back any portion of their debts. For more reasons why you might want to file for Chapter 7, see When Chapter 7 Bankruptcy Is Better Than Chapter 13.

    However, Chapter 13 might be a better choice, depending on your situation. For example, if you are behind on your mortgage and want to keep your house, you can include your missed payments in your Chapter 13 plan and repay them over time. In Chapter 7, you would have to make up the whole past due amount right away — and you might lose your house, if your equity exceeds the exemption amount available to you. For more on situations when Chapter 13 makes sense, see Reasons to Use Chapter 13 Instead of Chapter 7.

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    (Note: The following article is an excerpt from the U.S. House of Representatives Judiciary Committee Report 109-031. See the Full Text of House Report 109-031, with footnotes, from the U.S. Congress)

    The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 represents the most comprehensive set of bankruptcy reforms in more than 25 years. The new consumer bankruptcy provisions in the Act came as a response to several factors.

    1. Increase in Bankruptcy Filings

    The recent escalation of consumer bankruptcy filings does not appear to be just a temporary event, but part of a generally consistent upward trend. In 1998, for example, bankruptcy filings exceeded one million for the first time in our nation’s history. Over the past decade, the number of bankruptcy filings has nearly doubled to more than 1.6 million cases filed in fiscal year 2004. 

    As a result of this trend showing increased bankruptcy filings, there is a growing perception that bankruptcy relief may be too readily available and is sometimes used as a first resort, rather than a last resort. Despite the view of opponents of bankruptcy reform that abuse in the system is not widespread and that most bankruptcy filings result from causes beyond debtors’ control (such as family illness, job loss or disruption, or divorce) the U.S. House of Representatives Judiciary Committee concluded that reforms were nevertheless necessary.

    2. Losses Associated with Bankruptcy Filings

    There are significant losses asserted to be associated with bankruptcy filings. As one witness explained during the Senate Judiciary Committee’s hearing on the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 earlier this year:

    Like all other business expenses, when creditors are unable to collect debts because of bankruptcy, some of those losses are inevitably passed on to responsible Americans who live up to their financial obligations. Every phone bill, electric bill, mortgage, furniture purchase, medical bill, and car loan contains an implicit bankruptcy ‘tax’ that the rest of us pay to subsidize those who do not pay their bills. Exactly how much of these bankruptcy losses is passed on from lenders to consumer borrowers is unclear, but economics tells us that at least some of it is. We all pay for bankruptcy abuse in higher down payments, higher interest rates, and higher costs for goods and services.

    According to some analyses, the increase in consumer bankruptcy filings has adverse financial consequences for our nation’s economy. For instance, it was estimated that in 1997 alone more than $44 billion of debt was discharged by debtors who filed for bankruptcy relief, a figure when amortized on a yearly basis amounts to a loss of at least $110 million every day. These losses, according to one estimate, translate into a $400 annual ‘tax’ on every household in our nation. In 2003, the Nilson Report (a credit industry newsletter) announced that issuers of proprietary and general purpose credit cards ‘lost $18.9 billion in 2002 from consumer bankruptcy filings,’ an increase of 15.1 percent over the prior year. The Credit Union National Association (CUNA) reported that credit unions, as of 2002, lost ‘nearly $3 billion from bankruptcies’ since Congress began its consideration of bankruptcy reform legislation in 1998.

    3. Potential Bankruptcy Abuse

    A third factor motivating comprehensive reform is that the present bankruptcy system has loopholes and incentives that allow and — sometimes even encourage — opportunistic personal filings and abuse. A civil enforcement initiative undertaken in 2002 by the United States Trustee Program (a component of the Justice Department charged with administrative oversight of bankruptcy cases) has consistently identified such problems as debtor misconduct and abuse, misconduct by attorneys and other professionals, problems associated with bankruptcy petition preparers, and instances where a debtor’s discharge should be challenged.

    4. Debtors’ Ability to Repay Debt

    A fourth factor relates to the fact that some bankruptcy debtors are able to repay a significant portion of their debts, according to several studies. Current law, however, has no clear mandate requiring these debtors to repay their debts. According to the National Association of Bankruptcy Trustees, ‘[w]hile there is a universal agreement among the courts that an individual debtor’s ability to repay his or her debts from future earnings is, at the very least, a factor in determining whether substantial abuse would occur in a chapter 7 case, there are differences among the courts as to the extent to which they rely on a debtor’s ability to repay.’

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    Q: What is the new bankruptcy law, and when did it take effect?

    A: The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a major reform of the bankruptcy system, was passed by Congress and signed into law by President Bush in April 2005. The majority of changes instituted by this new law took effect on October 17, 2005 (180 days after the law was signed), although a few changes took effect immediately after the legislation was signed by the President.

    Q: Does the new law make it more difficult to file for bankruptcy under Chapter 7?

    A: Under the new bankruptcy law, as of October 17, 2005 bankruptcy applicants who wish to file under Chapter 7 must meet certain eligibility requirements under a “means test.”

    Under the “means test,” if your current monthly income is less than the median income in your state, you can file for bankruptcy under Chapter 7. But if your current monthly income is above the median income in your state, and you can afford to pay $100 per month toward paying off your debt, you cannot file under Chapter 7 and must proceed under Chapter 13 (more on Chapter 13 in the next section). Whether you can afford to pay $100 per month (or $6,000 over a five-year period) is based on a formula that includes your monthly income, your expenses, and the total amount of your debt. 

    Q: I want to file for bankruptcy, but I have not paid taxes for the past few years. Can I still file?

    A: Since the new law went into effect on October 17, 2005, people wishing to file bankruptcy under Chapter 7 or Chapter 13 must now show proof of their income by providing federal tax returns from the last tax year. If a bankruptcy filer has not paid taxes for the previous tax year, he or she must do so before the bankruptcy can proceed. 

    Q: Is it true that people who want to file for bankruptcy now need to go through some type of credit counseling?

    A: Yes. As of October 17, 2005, before filing for bankruptcy most applicants must undergo credit counseling in a government-approved program. Also, after the conclusion of bankruptcy proceedings, but before any debt can be discharged, bankruptcy debtors must participate in a government-approved financial management education program. You can get more information on pre-filing credit counseling and debtor education (and lists of approved counseling and debtor education agencies) from the U.S. Trustee Program (a component of the Department of Justice responsible for overseeing the administration of bankruptcy cases).

    Q: If I file for bankruptcy, can my landlord still evict me from my apartment?

    A: People who file for bankruptcy are entitled to certain immediate protections from certain legal actions — part of what is called the “automatic stay” effect of a bankruptcy filing, because many potential legal actions against the filer are stopped (known as “stayed” in legal terms). But as of October 17, 2005, when the new bankruptcy laws took effect, some of these protections have been eliminated. One key change is that filing for bankruptcy no longer delays or stops eviction actions

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